Court certifies class of brokers claiming race discrimination

The 2011 landmark Supreme Court case Dukes v. Wal-Mart Stores, Inc., which denied class certification to 1.5 million former and current female Wal-Mart employees alleging sex discrimination, was widely interpreted as a decision that would doom many employment discrimination class claims. In its wake, the plaintiffs bar has sought new class action strategies.

A recent 7th Circuit decision illustrates one such successful strategy: On Feb. 24, a three-judge panel reversed a district court’s decision in McReynolds v. Merrill Lynch, Pierce Fenner & Smith that had denied class certification in a race discrimination case.

“After Dukes, many experts said the Title VII class action was dead or, at the very least, on its last legs,” says McGuireWoods Counsel Andrew Trask. “If so, no one told the plaintiffs counsel prosecuting McReynolds.”

Nashville financial adviser George McReynolds filed a class action on behalf of 700 black Merrill Lynch brokers. The plaintiffs alleged that certain company practices had a disparate impact on class members, resulting in lower pay and fewer promotions, and therefore violated Title VII.

They cited two companywide policies as creating the disparate impact. One permitted brokers in each branch office to decide for themselves whether to work individually or in teams, and to choose the brokers with whom they worked. The plaintiffs alleged that white brokers tended to form all-white teams. The second rule established criteria for transferring customer accounts when a broker left the company. Brokers were rewarded with new accounts based on past success—in effect creating a viscious circle that allowed the most successful brokers to become even more successful.

The court drew a distinction between this situation and Dukes, in which the high court found that Wal-Mart delegated pay and promotion decisions to local managers, so discrimination was not the result of a companywide policy. In McReynolds, the 7th Circuit reasoned that the policies in question “are practices of Merrill Lynch, rather than practices that local managers can choose or not at their whim.”

While stating “the fact that black brokers have on average lower earnings than white brokers may have different causes altogether,” the court held that limited class certification was warranted to decide a common issue of whether company policies permitted individuals to exercise discretion in a way that created disparate impact.

The court granted class certification limited to the injunctive relief the plaintiffs requested. Injunctive relief could include ordering the employer to stop a discriminatory policy and reinstating or promoting certain employees. As a result, if a jury finds there was disparate impact, hundreds of separate trials could still be necessary to determine other equitable relief, including back pay.

Far-reaching Impact

Plaintiffs in McReynolds and other class action cases can still expect to face obstacles. “The result of McReynolds is that plaintiffs get a shot at trying to prove a case,” says Allan King, a Littler Mendelson shareholder. “But it is a very difficult case to prove correctly. It doesn’t follow that in the absence of the company policy, there would be strict proportionality of [black and white] members on teams or that brokers would have been paired randomly. What system would take its place and serve as a relevant benchmark?”

Still, experts say the impact of McReynolds may be far-reaching a s a model for plaintiff lawyers seeking class certification.

“McReynolds is a wake-up call,” says Seyfarth Shaw Partner Gerald Maatman. “It shows that post-Dukes, there are still cases in which plaintiffs can successfully attack company policies.”

As a result of the 7th Circuit’s decision, employers can expect to see more plaintiffs attempting to repackage claims that attack companywide policies allowing managers to exercise discretion in an allegedly discriminatory manner.

“If plaintiffs can isolate a policy that arguably is illegal and involves only a measure of managerial discretion, they now may be able to certify a class,” says Maatman.

In addition, the decision may signal the rise of the “issue class action,” in which plaintiffs attempt to litigate class claims piecemeal—first seeking classwide determination of common questions, followed by individual lawsuits seeking damages, King says (see “Cases at Issue”).

Mitigating Risk

Although Dukes could support the notion that giving wide managerial discretion to individual supervisors instead of establishing companywide policies reduces exposure to class action suits, “McReynolds demonstrates that merely decentralizing employment decisions may not insulate an employer from class litigation if the employer implements topdown control over the particulars of how that discretion is exercised,” King says.

And even if decentralized decisionmaking may lower class action risk, running a business efficiently through companywide policy-making should take precedence over defensive litigationavoidance strategies, experts say.

“If employers know a company policy may adversely impact the pay, promotional or other opportunities of protected minority groups, they ought to consider mentoring, career coaching and other career-enhancement programs to make sure promotions or bonuses are based on performance,” Maatman says.